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TMI Blog1997 (8) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 201 availed of for purposes of its business activities several credit facilities/loans from the appellant-bank at its Coimbatore and Salem branches and on April 22, 1983 an equitable mortgage was created in favour of the appellant-bank in respect of the land and buildings at Mettur including plant, machinery, spares and stores of the company for the several credit facilities and loans said to have been granted to the tune of Rs. 215 lakhs; that on February 14, 1984, the equitable mortgage was confirmed in favour of the appellant-bank for an enhanced sum of Rs. 660 lakhs and ultimately the same was confirmed in a sum of Rs. 669.16 lakhs, by deposit of title deeds. It is further claimed that the said charges have been duly registered in accordance with the provisions of the Companies Act, 1956, and certificate of registration were said to have been granted by the Registrar of Companies, Tamil Nadu on January 16, 1985 and August 26, 1986. Deeds of hypothecation of the raw materials and finished and unfinished goods and book debts and agreement of pledge of goods were also said to have been executed by the company as security for the amounts, so claimed to have been advanced. Even a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated June 26, 1989 to the second respondent about the mortgage said to have been created on April 22, 1983 and reiterating the other particulars and claims of the bank against the properties and calling upon the second respondent not to proceed with the proposed sale under the Revenue Recovery Act. This was also followed up by a further letter dated August 22, 1989. At this stage the second respondent issued a notice dated August 25, 1989, informing the appellant-bank that the Government dues will be given top priority as per section 24 of the Tamil Nadu General Sales Tax Act, 1959 in order to realise the arrears of sales tax to State exchequer and that the next date of auction will be intimated to them. The second respondent, by his proceedings dated September 28, 1989 informed that, the attached properties will be brought to sale in public auction once again on November 23, 1989 at 11.00 a.m. It is at this stage, the appellant-bank filed the above writ petition for the reliefs noticed supra. 4.. Before the learned single Judge, as could be seen from the order of the learned single Judge, it was contended for the appellant-bank that section 24 of the Tamil Nadu General Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Counsel placed reliance upon the decisions reported in Builders Supply Corporation v. Union of India AIR 1965 SC 1061, Jayaram Mudaliar v. Ayyaswami AIR 1973 SC 569 , Collector of Aurangabad v. Central Bank of India [1968] 21 STC 10 (SC); AIR 1967 SC 1831, Bank of Bihar v. State of Bihar AIR 1971 SC 1210, State of Andhra Pradesh v. Andhra Bank Limited AIR 1988 AP 18 and Union of India v. C.T. Senthilnathan 1977 (2) MLJ 497. 6.. Per contra, the learned Government Advocate (Taxes) with equal force contended that there are no merits whatsoever in the submissions on behalf of the appellant, that the charge created under the special enactment is wider than the mortgage and that so far as the case on hand is concerned, even the moment the return has been filed admitting the taxable turnover, the charge became attracted for the amount of tax due but not paid, and there is no infirmity or constitutional invalidity in the provisions enacted by way of amendment to sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act, 1959 by the Tamil Nadu Act 78 of 1986. In support of his submissions, the learned Government Advocate placed reliance upon the decision reported in State Bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case rests on the well-recognised principle that the State is entitled to raise money by taxation, because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary Governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds, and this consideration emphasises the necessity and the wisdom of conceding to the State the right to claim priority in respect of its tax dues. (b) In State Bank of Bikaner Jaipur s case [1995] 96 STC 612, the apex Court considered the scope and effect of section 11-AAAA of the Rajasthan Sales Tax Act, 1954, which created a first charge on the property of the dealer or any other person for any amount of tax, penalty, interest or other sum payable by a dealer or other person under the Act, clearly giving priority to the statutory charge over all other charges on the property including a mortgage. Their Lordships of the Supreme Court held as hereunder: Under this section the amount of sales tax or any other sum due and payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s created under section 11-AAAA of the Rajasthan Sales Tax Act over the property of the dealer or a person liable to pay sales tax and/or other dues under the Rajasthan Sales Tax Act, is created in respect of the entire interest in the property or only the mortgagor s interest in the property when the dealer has created a mortgage on the property. In other words, will the statutory first charge have priority over an earlier mortgage. It was urged by Mr. Tarkunde, learned counsel for the appellant-bank, that at the time when the statutory first charge came into existence, there was already a mortgage in respect of the same property. Therefore, the only property which was possessed by the dealer and/or person liable to pay tax or other dues under the Rajasthan Sales Tax Act, was equity of redemption in respect of that property. The first charge would operate, therefore, only on the equity of redemption. The argument though ingenious, will have to be rejected. Where a mortgage is created in respect of any property, undoubtedly, an interest in the property is carved out in favour of the mortgagee. The mortgagor is entitled to redeem his property on payment of the mortgage dues. This do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the statute has created a first charge on the property of the dealer. What is meant by a first charge. Does it have precedence over an earlier mortgage? Now, as set out in Dattatreya Shanker Mote s case (1974) 2 SCC 799, a charge is a wider term than a mortgage. It would cover within its ambit a mortgage also. Therefore, when a first charge is created by operation of law over any property, that charge will have precedence over an existing mortgage. (c) Thus, with the above declaration of law by the highest court of the land the doubts or controversies or scope for raising any further disputes in this regard must be held to have been set at rest, once and for all and the law so declared is very much binding upon every one in this country. 8.. The learned counsel for the appellant-bank, apparently to get over such a hurdle, has chosen to challenge the constitutional validity of the provisions of the Act and raise the further plea that the amendment has not really achieved its purpose and object, if it was to give priority to the recovery of sales tax and the sum due under the Tamil Nadu General Sales Tax Act, even over and above existing secured creditors. That in the teeth o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction shall, if it remains unpaid, be a charge on the properties of the said person and may be recovered as if it were an arrear of land revenue. Explanation.-For the purposes of this section, the amount due to a dealer or money held for or on account of a dealer by any person shall be computed after taking into account such claims, if any, as may have fallen due for payment by such dealer to such person and as may be lawfully subsisting. 11.. The plea of unconstitutionality has been projected only on the ground that the amended provisions of sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act, 1959, in so far as it purports to be the first charge even over and above the secured creditors, who hold charge under a mortgage is inconsistent with the provisions of the Transfer of Property Act, 1882, a Central Act and that in the absence of any consent obtained for the Amendment Act from the President of India under article 254(2) of the Constitution of India. The same cause not to prevail against the Transfer of Property Act. First of all this submission, in our view, proceeds upon a mis-apprehension of the provisions relating to the recovery of tax and the scope of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because each particular entry in the same List relates to a separate subject or group of cognate subjects. Even assuming that the impugned legislation incidentally trench on matters relating to transfer of property, it cannot be held to be invalid at all, particularly in view of the further fact that even section 100 of the Transfer of Property Act contemplates and permits creation of a charge by operation of law and once such creation of charge is effected by the operation of law certain inevitable consequences flow from it even by the operation of the Transfer of Property Act itself as expounded in the decisions reported in Dattatreya Shanker Mote v. Anand Chintaman Datar (1974) 2 SCC 799 and State Bank of Bikaner Jaipur v. National Iron Steel Rolling Corporation [1995] 96 STC 612 (SC). The Amendment Act and the amended sections 24(2) and 26(6) of the Tamil Nadu General Sales Tax Act have not been challenged on any other ground of violation of the provisions of the Constitution of India. For all the reasons stated above, we reject the plea on behalf of the appellant-bank of the alleged inconsistency with the provisions of the Transfer of Property Act, as unsustainable and de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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